Hilton Worldwide Holdings filed eagerly awaited plans for an initial public offering Thursday, offering a glimpse into how
Blackstone Group
BX -0.35%
LP turned around the world's largest hotel chain after one of the most unfortunately timed buyouts in recent memory.

Hilton Worldwide, the famous hotel chain, filed for an IPO of as much as $1.25 billion, which will mark the company's return to the public markets as the company's current management is looking to cash out. David Benoit joins MoneyBeat. Photo: Getty Images.

The private-equity firm turned what could have been a disaster into a success story by recruiting new management, restructuring the company's debt and aggressively expanding Hilton brands overseas. Hilton today owns, operates or franchises properties with more than 665,000 rooms in 90 countries and territories. Before the Blackstone acquisition it was less than 500,000.

The bee hives at Hilton Worldwide's Waldorf Astoria in New York supply the hotel's restaurants with honey; Hilton, taken private in 2007, has filed for an IPO.
Associated Press

Profits also have jumped, according to the new filings. Hilton's adjusted earnings before interest, taxes, depreciation and amortization was nearly $2 billion in 2012, according to the Securities and Exchange Commission filing. That figure is up about 25% from 2010.

"You can just definitely tell it was a sleepier company beforehand," says Monty Bennett, chief executive of Ashford Hospitality Trust, which owns a couple dozen Hilton branded hotels. "Now they are definitely more focused and more attuned to the customers and the owners."

Some analysts put Hilton's value at around $30 billion.

Hilton owns, operates or franchises 4,041 hotels and other properties world-wide under the Hilton name as well as other well-known brands like Waldorf Astoria Hotels & Resorts, Embassy Suites Hotels, and Hampton Inn.

Some analysts say the McLean, Va., company still has some holes to fill. In particular it lags behind some rivals in spreading its lucrative luxury brands. It also hasn't created a boutique line of hotels aimed at affluent, younger travelers, a "lifestyle" trend popularized by competitors like
Starwood Hotels & Resorts Worldwide.
One problem: It agreed in 2010 to delay such a development until this year to settle a suit with Starwood, which alleged corporate espionage after some of its former executives were hired by Hilton.

Hilton still faces challenges in raising what is expected to be the largest ever hotel initial public offering in the world's choppy capital markets. While the filing calls for Hilton to raise $1.25 billion, people familiar with the process say that the ultimate amount raised could be closer to $2 billion or more.

The IPO is expected during the first half of next year, as lodging companies are gaining momentum. Hotels are outpacing other industries in their valuation, with revenue growing steadily since the downturn. Hilton, for example, had revenue of $9.3 billion in 2012, up about 15% from 2010, according to the SEC filing.

Investors are hopeful that opportunities overseas—especially in developing countries such as China and India—present new areas for growth.

Hilton's overseas growth potential is what intrigued Blackstone in 2007 when it decided to take the hotel chain private, say people familiar with the firm's thinking. One year earlier, Hilton had reunited its foreign and domestic brands by acquiring Hilton International Co. for $5.7 billion. The company had been divided decades earlier when founder Conrad Hilton sold the international rights.

Blackstone purchased Hilton for $18 billion, not including more than $7 billion in existing debt, in what was one of the largest leveraged buyouts at the time. The deal left the company saddled with about $20 billion in debt just as the world headed into the worst financial crisis since the Great Depression.

Hilton soon hit a rough patch as global travel nose-dived. Blackstone was able to reduce some of that stress in 2010 by restructuring the company's balance sheet, convincing creditors to chop $4 billion off the debt load. That reduced Hilton's interest expense by some $300 million a year.

The private-equity firm also brought in a new chief executive: Chris Nassetta, a charismatic hotel veteran who had been CEO of Host Hotels & Resorts, the largest publicly traded hotel owner. Mr. Nassetta transferred Hilton's headquarters from Beverly Hills to McLean, Va., a move that helped him clean house since most of the top executives didn't make the cross country move.

Mr. Nassetta's team focused on aggressively adding new hotels overseas. Hilton opened more than 1,000 new hotels since 2007, almost all of the additions being franchised or managed properties rather than hotels Hilton owns, limiting the amount of capital the company has had to expend.

The new team also started an extensive review of all the brands to upgrade and standardize service and amenities. Management also is taking a much more aggressive stance towards the design of hotels, according to observers and people who have worked with Hilton.

Blackstone and Hilton's task now is to convince investors that the company has become so much more growth oriented than it was in 2007 that it is worth even more money than at the peak of the market.

Some lodging stocks still haven't reached those heights. Also, other hotel IPOs are coming to market including the Extended Stay chain, owned by a Blackstone venture.

In Thursday's SEC filing, the company pointed to a long list of snapshot figures to portray how the company has morphed since 2007. For example, Hilton increased the number of rooms under construction by 121% to 92,000 rooms. As for overseas expansion, in 2007 15% of Hilton's rooms under construction were outside the U.S. Today 80% of them are.

Analysts said they thought investors would be impressed. Indeed, other lodging stocks might even suffer a little bit as people reallocated some investment funds towards Hilton, analysts said.

"This is a mammoth company," said Ryan Meliker, a hotel analyst for MLV & Co. "People knew they were going to be the biggest but people forget how large they were."

Deutsche Bank AG, Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley are the lead underwriters for the stock offering.